KeyCorp Reports Q3 EPS Up 24% and Raises 2026 Guidance

KeyCorp (NYSE: KEY ) reported third-quarter financial results on Tuesday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary KeyCorp reported third quarter earnings of $0.51 per share, a 24% increase year over year, with record quarterly revenue exceeding $2 billion, marking an 8% growth. The company continues to focus on its relationship-driven business model, evidenced by a $3.6 billion increase in average total deposits with minimal increases in deposit costs. Capital markets performance was strong, with a 27% sequential increase in investment banking and debt placement fees, despite ongoing geopolitical and market uncertainties. KeyCorp repurchased $320 million of common stock during the quarter, aiming to complete $1.3 billion in buybacks for the full year.

The company maintains a focus on AI and technology investments, with a $1 billion technology budget aimed at enhancing productivity and client solutions. KeyCorp updated its 2026 guidance, expecting a 10% net interest income growth and a 3% net interest margin in Q4 2026 while maintaining a neutral interest rate position. Management highlighted strong loan growth, particularly in commercial real estate, utilities, and renewable energy sectors, supported by new client acquisitions and increased line utilization. The company expressed confidence in achieving its long-term financial targets, including a 15% return on tangible common equity by 2027.

Full Transcript OPERATOR Good morning and welcome to KeyCorp's third quarter 2026 earnings conference call. During the presentation you can register a question by pressing STAR followed by one on your telephone keypad. If you change your mind, please press STAR followed by two. As a reminder, this conference is being recorded.

I would now like to turn the conference over to Troy Gates, KeyCorp's Director of Investor Relations. Please go ahead. Troy Gates (Director of Investor Relations) Thank you, operator, and good morning, everyone. I'd like to thank you for joining KeyCorp's third quarter 2026 earnings conference call.

I'm here with Chris Gorman, our Chairman and Chief Executive Officer, Clark Caia, our Chief Financial Officer and Head of Technology, and Mo Rahmani, our Chief Risk Officer. As usual, we will reference our earnings presentation slides which can be found in the Investor Relations section of the key.com website. In the back of the presentation you will find our statement on forward-looking disclosures and certain financial measures including non-GAAP measures. This covers our earnings materials as well as remarks made on this morning's call.

Actual results may differ materially from forward-looking statements and those statements speak only as of today, October 20, 2026, and will not be updated. With that, I will turn it over to Chris. Chris Gorman (Chairman, Chief Executive Officer, and President) Thank you, Troy, and good morning, everyone. We reported third quarter earnings of $0.51 per share, up 24% year over year, reflecting the strength of Key's relationship-driven franchise, the disciplined execution of our strategy, and the momentum we continue to build across the business.

We reported record quarterly revenue of over $2 billion, which represents 8% year over year growth, PPNR growth of $60 million on a linked quarter basis, and, importantly, return on tangible common equity that exceeded 15%. As we continue to make significant progress with respect to achieving and sustaining a 15% plus return on tangible common equity by year end 2027, on our path to achieving our current long-term target between 16% and 19%, we continue to deliver on the commitments we have made. Our relationship-focused business model continues to differentiate Key and was evident again this quarter.

Our deposit franchise continues to perform well in a competitive environment. Average total deposits grew $3.6 billion, while interest-bearing deposit costs increased only 3 basis points during the quarter. Overall funding costs rose just 1 basis point. Net interest margin expanded 6 basis points sequentially to 2.95%, reflecting the continued fixed asset repricing and funding optimization.

Our capital markets team delivered strong results with investment banking and debt placement fees increasing 27% sequentially, with growth in M&A and syndications. Asset quality remains strong. Our net charge-off ratio improved to 32 basis points, and our nonperforming asset ratio improved 19 basis points to 55 basis points. During the quarter, we repurchased $320 million of common stock, keeping us on pace to achieve our full-year share repurchase target of $1.3 billion.

We remain comfortable with our current capital levels. With strong organic capital generation, we will continue to take a measured approach to capital management. As a reminder, our capital priorities remain unchanged. First, we will continue to support our clients and prospects.

Second, we will continue to invest in people and technology. Third, we will maintain our strong dividend, and finally, we will return capital to shareholders through share repurchases. While we continue to successfully complete tuck-in acquisitions like Clearwater, traditional whole bank M&A is not a priority. The economic environment remains constructive and our momentum continues to be strong.

We are seeing healthy client engagement and activity across our businesses. We continue to organically grow clients. In the third quarter, commercial clients increased 3% and relationship households increased 2% from the prior year. Commercial loan growth remained strong and broad-based by both industry and geography.

Period-end C&I loans increased 5% sequentially, reflecting both new client acquisition and a 200 basis point increase in line utilization to 33%, the highest level in over three years. The line utilization increase is reflective of clients continuing to invest in their businesses. Our consumer trends remain strong and resilient as our clients continue to benefit from a healthy labor market and the wealth effect. We continue to see strong performance and are gaining share across our priority fee-based businesses: investment banking, commercial payments, and wealth management.

In the third quarter these businesses collectively grew 12% compared to the prior year. Investment banking pipelines are up 5% sequentially, despite significant pull through in the third quarter, and remain at historically elevated levels supported by record M&A pipelines. While middle market M&A activity has yet to normalize, we continue to see significant client engagement and remain confident in our expectation for mid-single-digit investment banking fee growth this year. In commercial payments, total gross payment fees increased 8% compared to the prior year.

We continue to scale embedded banking and are encouraged by our trajectory in wealth. Assets under management reached another record this quarter. Wealth remains a significant opportunity for us, as we are less than 10% penetrated with respect to our current base of mass affluent households who bank with Key. We continue to invest in people and technology.

We are attracting top talent and continue to hire frontline bankers. Our $1 billion technology budget this year has supported new product and service capabilities while allowing us to position the company for the future. We continue to embed AI in enterprise-wide end-to-end processes, currently targeting four: commercial onboarding and servicing, commercial originations, consumer servicing, and software engineering. Earlier this year, Clark assumed leadership of our technology organization, creating even tighter alignment among our business strategy, operating model, and technology investments.

Under his leadership, we are accelerating the deployment of AI across these domains to simplify processes, increase productivity, and help our teammates spend more time delivering advice and solutions to clients. While we remain in the early stages, we are encouraged by the opportunity in front of us. As we look ahead, the geopolitical and macro outlook remain uncertain. At Key, we remain focused on managing what we can control and remain well positioned to perform through a range of potential economic scenarios.

While our results are strong, we acknowledge there is uncertainty in the broader market. We are actively managing the risks and maintaining discipline throughout the bank. We are well positioned for a range of potential rate scenarios and continue to intentionally manage our balance sheet to be fairly neutral from an interest rate perspective. In summary, we are proud of our third quarter performance and the sustained momentum across our business.

These results would not be possible without the contributions from each of our teammates. Thank you for your dedication that will result in what we expect to be both a record revenue and record pre-provision net revenue year in 2026. We are currently in the midst of our planning process and will have more to say on 2027 at year end, but with our strong trajectory and healthy pipelines, I believe we are well positioned to drive another year of outsized revenue and earnings growth in 2027. With that, I'll turn it over to Clark.

Clark Khayat (Chief Financial Officer) Thanks, Chris. As Chris highlighted, continued execution of our relationship-based strategy drove strong performance in the quarter. For the third quarter, revenue exceeded $2 billion. PPNR reached a record level and we improved returns inclusive of improving product quality.

Starting on slide 4, we reported third quarter earnings per share of $0.51. Revenue was up 8% year over year, while noninterest expenses increased by 5%. When excluding the FDIC special assessment in the year-ago quarter, tax-equivalent net interest income increased 10% year over year and 4% sequentially. Noninterest income increased 6% year over year.

Provision for credit losses of $61 million included $89 million, or 32 basis points, of net charge-offs and a reserve release of $28 million dollars. The net release reflected improved portfolio performance, scenario impacts, and continued remix to higher credit-quality relationships, partially offset with some qualitative build to reflect ongoing economic and geopolitical uncertainty. We remain well reserved for a range of economic outcomes. Return on average tangible common equity increased 260 basis points year over year to 15.1%.

Moving to the balance sheet on slide 5, average loans were up $1.5 billion sequentially. Average C&I loans increased 4%, or $2.3 billion, partly offset by the runoff of low-yielding consumer loans. On a period-end basis, C&I loans increased by $3.3 billion, or 5%. As Chris mentioned, growth came from a combination of broad-based new client acquisition and an increase in utilization.

Turning to slide 6, average deposit balances increased $3.6 billion, or 2.4%, sequentially, exceeding loan growth and allowing us to reduce wholesale funding. Client deposits, which exclude brokered CDs, grew $2.8 billion, or 1.9%, driven by growth in commercial operating balances. Last quarter we communicated expectations for $3 billion or more client deposit growth in the second half of 2026, and based on the growth in the third quarter, we have nearly achieved that.

While we continue to monitor deposit dynamics in a higher-rate environment, we now expect incremental client deposit growth beyond the original $3 billion and would expect our loan growth for the remainder of 2026 to be fully client deposit funded. Total deposit cost increased 3 basis points sequentially to 1.66% and total funding costs rose just 1 basis point. If market expectations materialize as currently estimated, we expect beta in the rate hiking cycle to be roughly symmetrical to the rate easing cycle, reaching a mid-50s cumulative beta over time with a beta lag in the first few quarters.

Turning to the drivers of NII and NIM on slide 7, tax-equivalent NII was up 4% and net interest margin of 2.95% increased 6 basis points from the prior quarter. The increase was driven by commercial loan growth, funding optimization via strong client deposit growth, swaps and securities repricing at higher rates, as well as an additional day in the quarter. We continue to manage our balance sheet to a fairly neutral interest rate position over a 12-month horizon, which we view as prudent from a risk management perspective given continued rate uncertainty and our focus on driving performance through the cycle.

On slide 8, noninterest income increased 6% year over year and included the negative impact of a $6 million Visa-related charge. In the current quarter, investment banking debt placement fees were $214 million, a 27% increase sequentially driven by M&A and syndication activity. Trust and investment services income grew 10% year over year, reflecting higher market values and positive net flows. Cards and payments and service charges on deposit accounts increased by 8% and 5% year over year, respectively, both reflecting strong commercial payment activity.

Corporate services fees were stable compared to the year-ago quarter as higher loan commitment and client FX fees were offset by lower hedging activity. Commercial mortgage servicing fees were $53 million at quarter-end. We were named primary or special servicer on approximately $735 billion of commercial real estate loans, of which about $270 billion is in special servicing. Active special servicing third-party assets were flat sequentially at $10 billion, about half of which is office.

We continue to expect $50 to $60 million of commercial mortgage servicing fees for the fourth quarter. On slide 9, third quarter noninterest expenses were $1.2 billion, up 2% sequentially. The increase was driven by investments in people and technology, higher incentive compensation related to strong fee growth, and an additional day in the quarter. We continue to expect full-year expense growth of 4%.

A portion of our technology investment is focused on leveraging AI to create a more efficient and scalable operating model. As Chris mentioned, in addition to broad-based adoption of AI tools, we've selected four end-to-end processes against which to apply these capabilities at scale. The confluence of well-understood processes with supporting data and an opportunity to reimagine client and employee experiences is proving to be a valuable recipe for AI tools. We are still early in the process but are optimistic that we can generate growth and efficiency while improving risk and controls.

In commercial onboarding and servicing, we're focused on delivering a faster client onboarding experience, which speeds our time to revenue generation while simplifying client support. In consumer servicing, we're deploying AI to automate high-volume tasks, reduce fraud, and enable faster issue resolution. In commercial originations, we're streamlining the credit and collateral processes to improve client and banker experiences and accelerate cycle times. And in software engineering, we're transforming how we build, deliver, and support technology through AI to achieve greater speed, quality, resiliency, and efficiency.

In summary, I'm energized by the opportunities ahead and what AI can unlock. Turning to slide 10, credit quality is broadly improving as our focus on disciplined client selection, prudent underwriting standards, and deep domain expertise in helping clients navigate the uncertain environment was evident this quarter. Net charge-offs were $89 million, or an annualized 32 basis points of average loans. As expected, nonperforming assets decreased $191 million, or 19 basis points, sequentially and, at 55 basis points, is the lowest since late 2023.

The decrease was driven by broad-based portfolio resolutions. The criticized loan ratio was stable at 4.9%. Moving to slide 11, our CET1 ratio was 11.1% and our marked CET1 ratio was 9% at quarter end. Since the start of the year, we repurchased over $1 billion of shares with approximately $250 million remaining to complete our targeted $1.3 billion of repurchases in 2026.

Moving to slide 12, we are updating our 2026 guidance. We are tightening our full-year net interest income growth outlook to approximately 10% compared to the prior guide of 9% to 11%. We now expect average loan growth to increase approximately 5% compared to the prior guide of 4% to 5% and average commercial loan growth of approximately 10% compared to the prior guide of 8% to 10%. We see full-year net charge-offs coming in in the range of 37 to 39 basis points compared to the previous guidance of 40 to 45 basis points.

The outlook reflects the improving credit trends we've seen in our portfolio to date. We now expect to generate a net interest margin of approximately 3% in the fourth quarter of 2026, reflecting average earning asset growth of approximately $1.5 to $2 billion from the third quarter. The updated guide is primarily a function of continued commercial loan growth and preferred capital optimization actions that are accretive to EPS and returns but are slightly dilutive to NIM. Compared to our guidance in the second quarter, we now expect fourth quarter earning assets excluding AOCI to be approximately $2.5 billion higher.

This increases NII and returns but reduces NIM approximately 2 basis points. We will continue to execute our relationship-based strategy to drive attractive returns from new and existing clients. With respect to preferred capital, we redeemed $525 million of Series D preferred stock in September and we're planning to opportunistically issue new preferreds in the second half of the year based on prevailing market conditions. However, we've not yet made the decision to issue new preferreds.